The large package of Exposure Draft Bills implementing the final recommendations of the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has caused more than a stir amongst financial service providers and members of the public alike.
Released by the government on 31 January 2020, the Exposure Draft is available for public comment until 28 February 2020—a fairly short period. The Government expects to introduce the Bills into Parliament by mid-2020.
Here, Langton Clarke explores three key proposed changes: strengthened reporting requirements for AFSL holders, new requirements for ongoing fee arrangements, and the new regulators' regulator tasked with supervising APRA and ASIC.
Reporting, reporting, reporting
In response to various recommendations of the Royal Commission, the Bills effectively replace the existing reporting obligations of AFS licensees and introduce a more stringent protocol.
The new reporting regime introduces the following key changes:
- AFS licensees, as an obligation of their licence, must now comply with reference checking and information sharing protocols which ASIC plans to introduce. The reference checking requirements apply specifically to financial advisers, and the purpose is clear: if you've been a bad adviser, your next boss is going to know about it.
- Recommendations in the Royal Commission Report suggest AFS licensees should be required to investigate misconduct by their advisers and remediate the client for any loss they suffer as a result. The Bills modify the existing laws by requiring AFS licensees to conduct an investigation once they are aware of the misconduct, keep their client informed of the investigation and, if necessary, remediate the client for any loss they suffered. We suspect these aren't the most controversial amendments proposed.
- The Bills strengthen the reporting requirements for AFS licensees. AFS licensees now have a bigger list of matters the Government considers 'investigation worthy' as well as a more prescriptive approach for investigations and reports that are lodged with ASIC. AFS licensees can no longer hide breaches (or the reasonable likelihood of a breach) behind an extended investigation period or a complicated breach report. ASIC wants to know what happened and they want to know now.
- Pursuant to one of the more substantial Commission recommendations, the Bills provide that mortgage brokers should be bound by the same reporting requirements described above.
What do you mean 'ongoing fees aren't forever'?
The Bills introduce new requirements for ongoing fee arrangements to be renewed annually by the client. Some advisers already do this, but clearly not enough for the Government's liking. The Bills also require the total amount of fees to be charged are disclosed to the client in writing and the client's written consent is required before any ongoing fee can be deducted from the client's account.
The regulators' regulator
The Bills propose to establish the Financial Regulator Assessment Authority (FRAA) which will be independent of government and responsible for oversight of APRA and ASIC. The key functions of FRAA will be to:
- Biennially assess and report on APRA and ASIC's effectiveness.
- When requested by the Treasurer, undertake capability reviews of APRA and ASIC.
- Report to the Treasurer on any matter relating to either or both of APRA and ASIC's effectiveness. The Bills provide a list of factors FRAA should consider when determining the effectiveness of APRA and ASIC.
If the introduction of the Financial Adviser Standards and Ethics Authority's new Code of Ethics is any indication, the public and industry stakeholders will have plenty to say about these proposed amendments. We can help with any queries about the Exposure Draft and will keep you up to date with any developments.